By Elaine Owen, Editor
The Congressional Budget Office (CBO) says the Treasury Department could run out of money to pay the nation’s bills by the end of September unless Congress takes action. The report released Tuesday (Feb. 26) cautioned if that happened, it could cause financial havoc and devastate the global economy.
The U.S. government has been spending more money than it brings in for years, forcing the Treasury to borrow money by issuing bonds.
But Treasury is allowed to issue only so much debt before it bumps up against the debt ceiling, a borrowing limit set by Congress.
Congress previously agreed to suspend that limit until March 2. But with the limit back in effect, Treasury technically does not have the authority to borrow additional funds. This has happened numerous times in recent years, and both Republican and Democratic administrations have resorted to other measures to keep paying the government’s bills—at times for several months after the debt ceiling is reached. But those efforts can keep the bills paid for only so long.
Deputy Assistant Treasury Secretary Jonathan Blum wrote in a recent letter to Rep. Richard E. Neal (D-Mass.), “The length of time that extraordinary measures can last is subject to considerable uncertainty.
Given this uncertainty, Treasury respectfully urges Congress to act as soon as possible to suspend or increase the statutory debt limit and protect the full faith and credit of the United States.”
The Trump administration has not given a specific date when it believes Treasury will run out of money, but the bipartisan CBO report is a widely respected estimate of when that might occur.
“The Treasury will probably run out of cash near the end of this fiscal year or early in the next one,” CBO wrote. The federal government’s fiscal year ends Sept. 30. “If that occurred, the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both.”
Congress has always voted to raise the debt ceiling, but in a standoff over government spending with former president Barack Obama in 2011, some Republicans threatened not to do so. The very threat not to raise the debt limit caused panic in financial markets and led Standard & Poor’s to downgrade the nation’s credit rating for the first time ever.
Federal Reserve Chairman Jerome H. Powell was asked Tuesday about what would happen to financial markets if Congress does not vote to raise the debt ceiling soon.
Powell responded, “It’s beyond even considering that the United States would not honor all of its obligations and pay them when due. It is just something that can’t even be considered.”
Powell said merely bumping up against the debt limit creates “a lot of uncertainty and serves as a distraction from what is otherwise a pretty good economy.”
Congress voted in February 2018 to suspend the debt limit through March 1, 2019, as part of the bipartisan budget deal.
Prominent economists and policymakers on both sides of the aisle have called for the United States to get rid of the debt ceiling altogether. Historically it was meant to be a curb on government spending, but in reality, Congress typically passes budgets that spend more money than the latest debt limit.
The money is already spent and Congress votes to raise the debt ceiling later, causing potential political and economic crises that leaders of both parties dread. However, others argue the limit still serves a purpose to remind Americans that the federal government is more than $22 trillion in debt, forcing periodic reckonings with the imbalance between what the government takes in and what it spends.
Extraordinary Measures Still Available to the Treasury
Unless further legislation is enacted, the Treasury must take extraordinary measures to continue funding government activities after March 2, 2019. Even then, it will be able to continue borrowing only for a limited time.
Under current law, the federal government would borrow just over $1.0 trillion in fiscal year 2019. The government normally runs a deficit in the first and second quarters of the fiscal year. Nevertheless, inflows and tax receipts due in April—combined with the measures listed above—should allow the Treasury to finance the government’s normal operations for several months without an increase in the debt ceiling.
For full report: https://www.cbo.gov/system/files?file=2019-02/54987-debt-limit.pdf